26 August 2017

When it comes to customer satisfaction, Canada's top-ranked mid-sized bank is Tangerine Bank, according to a recent survey from consulting firm J.D. Power. The bottom-ranked Big Five bank in the same study was Bank of Nova Scotia.

Does this strike anyone else as weird? After all, Scotiabank owns Tangerine; it launched the whimsical brand in 2013 as part of a strategy aimed at delivering low-cost, digital services to customers who increasingly prefer to do their banking online.

The fact that Canadians now have a very different view of the client experience at Tangerine compared with parent Scotiabank speaks to the uncharted territory facing the country's financial institutions as they map out a strategy for what's arguably their single biggest marketing challenge: Winning the hearts and wallets of millennials.

When it comes to digital banking, a key offering to a generation born between 1981 and 2000 and permanently tethered to their cellphones, there's now a stark split in tactics among the Big Five banks.

Canadian Imperial Bank of Commerce showed its hand last week by launching Simplii Financial, a new subsidiary created by shifting two million clients from President's Choice Financial, a unit formerly run jointly with grocer Loblaw Cos. Ltd. Like Scotiabank's Tangerine, Simplii will be a brand that's distinct from the identity of parent CIBC, which currently anchors its own advertising campaigns around Percy the penguin and his pals.

In contrast, Royal Bank of Canada, Toronto-Dominion Bank and Bank of Montreal currently anchor their digital strategies on their own long-established brands. It's worth noting that RBC, TD and BMO ranked one, two and three in that J.D. Power customer satisfaction survey, which was published in July.

What's the right way to pitch to millennials?

Financially, that's an easy question to answer. RBC, TD and BMO put all their marketing muscle behind one name. In contract, every dollar spent to establish and burnish the brand at Simplii Financial and Tangerine is a dollar that's not available to advertise CIBC and Scotiabank.

But successful brands are about more than who spends the most on advertising.

Millennials represent a new consumer mindset, according to investment bank Goldman Sachs, which calls this device-loving cohort the first generation of "digital natives." In a recent report, Goldman said winning this crowd means doing business differently. Goldman's research found "with product information, reviews and price comparisons at their fingertips, millennials are turning to the brands that can offer maximum convenience at the lowest cost."

Rock-bottom fees and easy access are central to the pitch at Tangerine and Simplii. On a conference call on Thursday, CIBC CEO Victor Dodig said: "Simplii is about growth and it's about client focus. It will meet the needs of Canadians who value no fee daily banking and great rates through online, mobile and telephone channels."

When Mr. Dodig talks about growth in the mature domestic market, he's really saying he wants to lure customers from rivals. And the clients all banks covet are millennials. Right now, the demographic makes up 2.8 million Canadian households; baby boomers are the largest slice of the population at 5.6 million households, according to Environics. Look out a decade, and Environics projects millennials will make up 5.5 million households, all in their peak earning years, compared with 5.2 million aging boomers and 4.5 million members of Gen X.

The shift in demographics represents an enormous business opportunity. Over the past generation, the pecking order in Canadian retail banking was set in stone: RBC and TD led the pack.

That status quo is now in flux. The bank that gets its millennial marketing strategy right, then backs up its brand with innovative products and robust technology, is going to dominate the domestic market going forward.